Strap Yourselves In, Investors: September Is Going to Be a Bumpy Ride

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NEW YORK -- Imagine gathering nearly everything that has rattled investors' nerves over the past four years: the European debt crisis, fights over the U.S. government's budget and moves by the Federal Reserve. Now imagine all of them crammed into one month.

That month? It's September.

"Oh, it's definitely going to be fun," says Jason Pride, director of investment strategy at the money management firm Glenmede in Philadelphia.

As August wrapped up, trading desks and investment firms looked warily at the lineup of events slated for September and warned clients of turbulence ahead.

The Fed's September meeting is when many on Wall Street think the central bank will begin winding down its massive bond-buying program. German voters will decide whether Chancellor Angela Merkel gets another term as the leader of Europe's largest economy. And Congress will be on a tight deadline to pass a spending bill before the month ends, a process which could easily turn into another brawl over raising the government's borrowing limit.

Each item on the calendar could cause big swings in daily trading. And collectively, they could make an often dangerous month for the market even more volatile.


Then there is the wildcard. President Barack Obama on Saturday said that the U.S. should take military action in response to the alleged use of chemical weapons in an attack that killed hundreds in Syria. Obama, however, said that he would seek congressional approval before any military strike. Congress is scheduled to reconvene Sept. 9.

"Right now, we're probably in the lull that precedes the storm," says Mark Luschini, the chief investment strategist at Janney Montgomery Scott in Pittsburgh.

September has often been a cruel month for the stock market, which gives it a superstitious power for some investors. Since 1945, the Standard & Poor's 500 index has slumped nearly six out of every 10 Septembers, with an average loss of 0.6 percent.

This one could be much worse, investors say. Luschini and others think the S&P 500 could slump more than 9 percent below the record high of 1,709.67, reached Aug. 2.

On the bright side, the same people who think the market is likely headed for a rough stretch in the coming weeks also think it won't last. Even good years have bad months.

The Fed Meeting, Sept. 18

First up, it's the Fed meeting that everybody on Wall Street spent the summer talking about. Conventional wisdom says that the Fed will announce plans to trim its monthly purchases of bonds from $85 billion to around $75 billion. It would be the Fed's first step toward winding down the $3 trillion bond-buying program launched during the financial crisis.

There's trepidation about the move - known as "tapering" - because the Fed's efforts have held down borrowing rates, a boon to the once-devastated housing market.

Minutes from the Fed's July meeting showed "broad support" for scaling back. But there was nothing about how much.

The danger is that the Fed scales back much more than expected, says Glenmede' s Pride. Maybe, for instance, the Fed will buy $55 billion each month.

"Markets will react as if the Fed is slamming on the breaks," he says.

Barring any big surprises, however, investors will likely take the Fed's next move in stride, says Sam Stovall, the chief equity strategist at S&P Capital IQ.

Markets are supposed to be forward-looking and Fed Chairman Ben Bernanke started signaling a move to withdraw some support in May. People have had months to prepare for it. "I think there will be a collective yawn if they start tapering in September," Stovall says.

Investors may wind up more concerned about who replaces Bernanke when his term ends in January. President Barack Obama could nominate a successor as early as September. The current front-runners are Janet Yellen, the Fed's vice chairwoman, and Larry Summers, the former Treasury Secretary.

Stovall says that Summers seems like more of a political operator than Yellen. His concern is that a Fed under Summers would be less impartial, undermining an institution that's supposed to be independent of political winds.

"My worry is that Larry Summers gets it," Stovall says. "I really think his nomination would reduce investor confidence in the Fed."

The German Elections, Sept. 22

Remember the European debt crisis? From late 2009 until last year, worries about Greece, Spain or another of the continent's troubled economies would flare up and send the U.S. stock market into a tailspin.

This year has been different. France and Germany helped tug the eurozone out of an 18-month recession this spring. A closely watched survey recently showed business activity rising for four months straight. U.S. investors who used to keep close tabs on Europe's bond markets for signs of trouble now look to the region for investment ideas.

Germany's elections on Sept. 22 will likely push Europe back into the spotlight, if only because of what happens afterward. Analysts expect that the new German government will take up long-awaited reforms for the eurozone, the 17 countries that use the euro currency. That could easily lead to some public spats, especially if Greece's struggles to pay its debts again. Last week, Germany's finance minister said the country will need a third bailout package, a source of resentment for many Germans.

"Europe has been off the table as a looming risk, and that's likely to change once the election is over," says Martin LeClerc, chief investment officer at Barrack Yard Advisors in Bryn Mawr, Pa. "Europe is going to have to tackle some big issues."

Merkel's party leads in polls, and if she gets a third term in office with a stronger government, Pride of Glenmede thinks it could embolden her to drive the eurozone countries closer together. "Ultimately, that's a good thing for Europe and also a good thing for the market," he says.

The Budget, Sept. 30

If investors get through the Fed meeting and events in Europe unscathed, there's still one obstacle at the end of the month. And it could prove to be the biggest one, Pride says.

When members of Congress return from their summer break on Sept. 9, questions about Syria may top of their concerns. But they will also face two deadlines tied to the federal budget.

To keep the government running, Congress needs to pass a short-term spending bill before the fiscal year starts Oct. 1. And then there's the government's $16.7 trillion borrowing limit. Treasury Secretary Jacob Lew warned that, unless it's raised soon, the government would lose the ability to pay all its bills by the middle of October.

The Obama administration has said it won't negotiate spending cuts with Congressional Republicans in exchange for lifting the debt limit.

John Boehner, the Republican Speaker of the House, said Aug. 26 that he plans to use the debt ceiling to demand deeper spending cuts. He promised "a whale of a fight."

The recent tough talk has reminded many in the financial markets of the debt-ceiling fight in August, 2011. That fight led the rating agency Standard & Poor's to strip the U.S. of its top, AAA credit rating. Stock markets slumped worldwide and the S&P 500 index plunged 6 percent in one day, its steepest daily drop since the 2008 financial crisis.

Among investors, there's a widely shared view that any budget squabbles could get rough but not as bad as back then.

"We think cooler heads will generally prevail," Pride says. "But if Boehner and his crew decide to hold the President's feet to the fire," it could spiral into a something sure to unnerve investors in the U.S. and abroad.

A drawn-out brawl, Pride says, could easily become "the largest speed bump for this year's market rally." So far, the S&P 500 is up 14 percent.

The fight is likely to follow the same plotline as earlier ones, investors say. A scary standoff ends with a last-minute agreement. And then, they hope, the market will rally.

"When it's over, we'll get back all that was lost," Luschini says.

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14 Comments

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dexrmerritt

You can't blame this on anyone but BHO. He has done nothing to help the economy but try todrain it with relief in all the wrong places.....

September 03 2013 at 11:11 AM Report abuse +2 rate up rate down Reply
pdbliz

..The SOLE PURPOSE of Obama and the NEW DEMOCRATE PARTY,,,is to bring AMERICA DOWN.......Make the people think they are the great ones and the only ones that can help the people,,,,, STUPID PEOPLE,!!!!!!!! You have to help yourself,,,the government can,t,,,THEY ARE BROKE,!!!!!! But,,todays generation,,,can not see this,,,they have been taught GOVERMENT IS THE ONLY WAY.!!!!!!
How sad the youth are today........STOCK MARKET,,,,,,,NO WAY,,,,,,The government knows now what the market is going to do.. TAKE YOUR MONEY AND RUN,,,GIVE IT TO ,,,,WELFARE DEMOCRATES.!!!!!

September 03 2013 at 9:18 AM Report abuse +3 rate up rate down Reply
pulqui1938

Fortunately, I have never pay attention to these "palm readers", "crystal ball managers". The only thing they create is an emotional, nervous reaction to investors who, later on, will be sorry for acting based on these "predictions". There are only two rules. Rule 1: The market has its own life. Is unpredictable and does not follow any logic. Rule 2: No computer models or broker's prognosis can change Rule 1. So, don't allow brokers to make a fortune with your erratic moves. Just look at the forest and not the tree. Review the historical performance of the market (DJIA and S&P) and you will see that ALWAYS they bit the predictions of the brokers and armageddon announcers.

September 02 2013 at 6:00 PM Report abuse +4 rate up rate down Reply
hsstempe

tobagann run on rocks would be more like it. no s sherlock. the lyin feds, lying govt,
dumb asses everywhere and crroked banks, real estate in the toilet and flushed, pick somethin this worthless jackass has done other than print money. fire all politicians and keep them fired.

September 02 2013 at 5:09 PM Report abuse +3 rate up rate down Reply
harrisg111

Of course it's going to be bumpy.The Feds keep masking over the true state of our economy. The banks are allowed to mask over their true financial conditions and allowed to break laws and rules with criminal prosecution, but the truth underneath it all keeps shining thru in spite of the hiding.. That's why it's never going to be good until the entire mess comes to the surface and properly fixed.

Harris Glasser
"It's My Money & I Want It!"
www. HarrisHelps.org

September 02 2013 at 2:46 PM Report abuse +2 rate up rate down Reply
betty_brock

Hey, President Wishy Washy, just pretend there wasn't a gas attack on the Syrian people. You are good at fabrication. Problem solved.

September 02 2013 at 11:59 AM Report abuse +1 rate up rate down Reply
1 reply to betty_brock's comment
betty_brock

No, that isn't off subject at all.

September 02 2013 at 12:07 PM Report abuse +2 rate up rate down Reply
papajokr

When ovomitcare kicks in it will be a ride alright. A nantucket sleighride to the bottom. When the fed quits the counterfitting it will start to tunnel too.

September 02 2013 at 11:15 AM Report abuse +3 rate up rate down Reply
Hello Bob

The ride should be lumpy and bumpy. A smooth ride invites complacency and you can easily lose your butt. When dealing with any investments, STAY AWAKE !

September 02 2013 at 10:50 AM Report abuse +3 rate up rate down Reply
1 reply to Hello Bob's comment
betty_brock

So we can see the end coming?

September 02 2013 at 4:48 PM Report abuse -1 rate up rate down Reply
2 replies to betty_brock's comment
lawmutt55

That's not what he said.

September 02 2013 at 5:28 PM Report abuse +1 rate up rate down
betty_brock

The end is coming. Shut your eyes.

September 02 2013 at 6:23 PM Report abuse +1 rate up rate down
jagentmike

just what we need , naysayers like the person who wrote this article.

September 02 2013 at 9:48 AM Report abuse rate up rate down Reply
scottee

and the ride...since Nixon took the dollar off the silver standard...has been what?

September 02 2013 at 8:42 AM Report abuse +6 rate up rate down Reply
1 reply to scottee's comment
wayne

I,am going to make big money if the market drops,i buy in dips

September 02 2013 at 8:44 AM Report abuse -4 rate up rate down Reply